Greece falls deep into recession

Greece is in the grip of deepening recession, official data showed yesterday, as a stinging austerity programme agreed with the EU and IMF in exchange for a debt rescue package begins to bite.

The national statistics office said the downward spiral accelerated in the second quarter as a barrage of wage and pension cuts plus tax rises sapped consumer demand.

A “significant” fall in consumption and lower investment saw the economy shrink 1.5 per cent, it said, following a contraction of 0.8 per cent in the first quarter to extend a recession that began in the middle of 2009.

The latest figures put the economy on track for a forecast contraction of four per cent this year.

On a 12-month comparison, Greek output was down 3.5 per cent in the second quarter after a fall of 2.3 per cent in the first.

Worse still, and promising more pain to come, unemployment shot up to 12 per cent in May from 8.5 per cent a year earlier, with more than 600,000 people out of work, the statistics office said.

Athens agreed a €110 billion rescue deal with the European Union and International Monetary Fund in May to cover its borrowing needs until 2012 as it was pushed to the brink of default.

The markets had turned against Greece whose public deficit and total debt had soared way past EU limits, pushing up its funding costs to unsustainable levels as the crisis appeared to threaten the whole eurozone project. As part of the quid pro quo, Athens agreed to sweeping economic reforms and a draconian series of spending cuts and tax increases which sparked a series of protests across the country, including six general strikes.

Traders say a four per cent hike in sales tax between March and July, coupled with the highest inflation figures in 17 years, has had a disastrous effect on business.

“The government must urgently reconsider its tax policy,” the chairman of the Athens chamber of commerce and industry, Constantinos Michalos, told Mega television station.

A leading trader association this week reported that 17 per cent of businesses in central Athens have shut down because of the crisis.